Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - PAYG instalments and trusts

Outline of Chapter

1.1 The amendments contained in Schedules 1 and 5 and some of the items of Schedule 4 to this Bill comprise the third tranche of the proposed PAYG instalments regime. The first tranche is contained in the PAYG Bill and the second tranche is contained in the Tax Administration Bill.

1.2 The PAYG instalments regime will replace the existing company instalment and provisional tax systems. Broadly, the new regime will ensure that taxpayers pay:

•

quarterly or annual instalments that reflect their current trading and investment conditions; or

•

annual instalments based on last years tax; or

•

quarterly instalments based on last years tax and a GDP adjustment.

1.3 This Bill will amend proposed Parts 2-1, 2-5 and 2-10 in Schedule 1 to the TAA 1953 to provide special rules for what is instalment income for certain entities and to provide for the application of the PAYG instalments regime to trustees.

1.4 Abbreviations used throughout this Chapter are summarised in the Glossary following the Table of contents for this Explanatory Memorandum. Unless otherwise stated, legislative references are to proposed Parts 2-1, 2-5 and 2-10 in Schedule 1 to the TAA 1953. Schedule 1 will be inserted by the PAYG Bill.

Background to the legislation

1.5 Currently, there are 2 instalment systems, the company instalments and provisional tax systems. The PAYG Bill and the Tax Administration Bill provide for a new PAYG instalments regime to replace the company instalment and provisional tax systems. The provisions in Schedule 1 and Schedule 4 (in part) to this Bill will:

•

state what is instalment income for certain entities;

•

provide that a trustee will pay PAYG instalments in respect of the trustees tax liability in respect of:

-

a beneficiary; and/or

-

income to which no beneficiary is entitled; and

•

provide a way to calculate instalment rates for a trustee where the trustee is liable to pay tax in respect of different beneficiaries or in respect of income to which no beneficiary is entitled.

1.6 Other provisions in Schedule 4 and Schedule 5 to this Bill will insert amendments to:

•

provide a special rule for working out the adjusted taxable income of a life insurance entity or a registered organisation;

•

provide for the transitional deferral of company instalments where an amended assessment issues;

•

provide for collection of SFSS and ABSTUDY debts through the PAYG system; and

•

make consequential and technical amendments.

Summary of new law

1.7 The amendments in Schedule 1 to this Bill insert special rules which will provide that distributions from:

•

a corporate limited partnership; and

•

a public trading trust or corporate unit trust

are instalment income at the time they are distributed to a partner or trust beneficiary.

1.8 Consequently, the general provisions dealing with the instalment income of partners and beneficiaries which are contained in the PAYG Bill will be amended so that they do not apply to:

•

partners of a corporate limited partnership in respect of income from that partnership; or

•

a beneficiary of a public trading trust or corporate unit trust (usually an investment trust) in respect of income from that trust.

1.9 New Subdivision 45-N will be inserted by Schedule 1 to this Bill to define instalment income for a trustee that is liable to pay PAYG instalments in respect of:

•

a beneficiarys share of the trust net income; or

•

the net income of the trust (or a share of) where no beneficiary is entitled to trust income.

1.10 This new Subdivision will also provide that a trustee has a separate instalment liability for each liability to pay tax in respect of:

•

a beneficiary who is under a legal disability;

•

a beneficiary who has a vested and indefeasible interest in trust income, but cannot require the trustee to pay that amount to them; and

•

income to which no beneficiary is entitled.

1.11 Subdivision 45-N provides for how the Commissioner works out one or several instalment rates for a trustee referred to in paragraph 1.10.

1.12 Subdivision 45-N will also contain rules to:

•

ensure that some trustees have the same choices as an individual to pay PAYG instalments on a notional tax basis (GDP-adjusted if quarterly) and annually; and

•

enable the Commissioner to work out a benchmark instalment rate and benchmark tax where the trustee has varied an instalment or an instalment rate.

1.13 Provisions in Schedule 4 to this Bill will:

•

set out what is instalment income for a life insurance entity or a registered organisation and introduce a special rule for working out their adjusted taxable income;

•

state the effect of an amended assessment for the 1999-2000 income year on the amount of a final company instalment that an instalment taxpayer may defer and on the period for which it may be deferred;

•

enable SFSS and ABSTUDY debts to be collected through the proposed PAYG system; and

•

make consequential and technical amendments.

Comparison of key features of new law and old law

1.14 The PAYG instalments regime provisions in the PAYG Bill include a general rule about instalment income at section 45-120 and some special rules about the instalment income of partners and beneficiaries at section 45-260 and section 45-280 respectively. Items 6 and 9 to 11 in Schedule 1 and item 36 in Schedule 4 to this Bill will:

•

modify those special rules for partners and beneficiaries; and

•

introduce additional rules for trustees, life insurance entities and registered organisations.

1.15 The provisions will provide that, where a partnership or a trust is taxed as an entity, a partners or beneficiarys instalment income will include a distribution made from the partnership or trust during an instalment period (that is, the instalment quarter or income year as appropriate).

1.16 New provisions will also set out how Part 2-10 in Schedule 1 to the TAA 1953 applies to trustees. These provisions will provide that a trustee that is liable to pay tax in respect of a beneficiarys share of the trusts net income, or the income to which no beneficiary is entitled, will also be liable to pay PAYG instalments in respect of such a liability.

1.17 Currently, SFSS and ABSTUDY debts are collected through the assessment process. New provisions in this Bill provide that these debts can be collected under the PAYG system, that is, progressively throughout the year.

Detailed explanation of new law

Working out the instalment income of certain entities.

1.18 Items 6, 9 to 11 and 16 of Schedule 1 to this Bill and item 36 of Schedule 4 to this Bill will make amendments and insert new provisions to provide a fuller explanation of what is instalment income for different entities.

Partners in partnerships

1.19 A partner in a partnership works out its instalment income in relation to the partnership according to proposed section 45-260.

1.20 However, item 6 of Schedule 1 to this Bill will insert subsection 45-260(4) which will provide that proposed section 45-260 does not apply to a partner in a corporate limited partnership.

1.21 Instead the general rule in proposed section 45-120 will apply. A partner in a corporate limited partnership will include any distribution from that partnership in its instalment income for the instalment period in which the distribution is made. [Note to subsection 45-260(4)]

1.22 Consequential amendments are made by items 3 and 4 of Schedule 1 to this Bill to ensure that the notes to proposed subsection 45-120(1) clearly convey that this is the intended result . [Notes 1 and 2 to subsection 45-120(1)]

Beneficiaries who are required to apply subsection 45-280(1)

1.23 Proposed subsection 45-280(1) is a general provision that requires a beneficiary of a trust to include a share of the trusts instalment income in its instalment income for each instalment period. The share is worked out by dividing the beneficiarys assessable income from the trust for the last income year by the trusts instalment income for that year. Proposed subsection 45-280(2) defines the beneficiarys assessable income from the trust for the last income year.

1.24 Item 9 of Schedule 1 to this Bill will repeal proposed subsection 45-280(2) and insert new subsection 45-280(2) . The beneficiarys assessable income from the trust for the last income year is the amount included in the beneficiarys assessable income less any part of that amount that is attributable to a capital gain made by the trust. The new subsection 45-280(2) is more consistent with proposed section 45-120 in its treatment of capital gains.

1.25 However, there are two circumstances in which the capital gain is not excluded from the instalment income. [Note to subsection 45-280(2) and subsection 45-290(1)]

1.26 First, a capital gain is not excluded if the beneficiary is:

•

an eligible ADF; or

•

an eligible superannuation fund; or

•

a pooled superannuation trust.

[Subsection 45-290(2)]

1.27 Secondly, a capital gain is not excluded from the CS/RA class of assessable income (that is, the complying superannuation or roll-over annuity income) of a:

•

life insurance entity; or

•

registered organisation.

[Subsection 45-290(3)]

1.28 Item 11 of Schedule 1 to this Bill will insert section 45-290.

Beneficiary of an entity taxed trust

1.29 Proposed subsection 45-280(1) is a general provision that requires a beneficiary of a trust to include a share of the trusts instalment income in its instalment income each instalment period.

1.30 Item 10 of Schedule 1 to this Bill will insert subsection 45-280(4) . It will provide that proposed section 45-280 does not apply to a beneficiary of a trust where the trustee is liable to be assessed, and to pay tax, under sections 102K or 102S of the ITAA 1936 for the income year that is, or includes, the instalment period. Those sections tax the trustees of public trading trusts and corporate unit trusts as if the trusts are companies.

1.31 Instead, a beneficiary of a corporate unit trust or a public trading trust will apply the general rule in proposed section 45-120 and include any distribution from the trust in its instalment income for the period in which the distribution is made. [Note to subsection 45-280(4)]

1.32 The consequential amendments made by items 3 and 4 of Schedule 1 to this Bill are needed to convey clearly that this is the intended result.

Life insurance entities and registered organisations

1.33 Proposed section 45-120 states generally that an entitys instalment income is its ordinary income to the extent that it is assessable income. However, other amounts are included in instalment income in certain circumstances.

1.34 Item 36 of Schedule 4 to this Bill will insert subsection 45-120(2A) . It will provide that the instalment income of a life insurance entity or a registered organisation includes its statutory income to the extent that it is included in the CS/RA class of assessable income (i.e. the complying superannuation or roll-over annuity income).

How Part 2-10 applies to the trustee of a trust

1.35 Item 16 of Schedule 1 to this Bill will insert Subdivision 45-N at the end of the Division. This Subdivision will explain how the PAYG instalments regime applies to a trustee.

Trustees to whom a single instalment rate is given

1.36 Subdivision 45-N explains that Part 2-10, with the exception of proposed Subdivision 45-D (GDP-adjusted notional tax instalments), applies to a trustee that is covered by any of items 6 to 12 in the table in section 9-1 of the ITAA 1997. [Subsection 45-450(1)]

1.37 As each of these trustees is taxed on the trusts income as if the trust is a company, the trustee will only have one instalment rate. These trustees are called single-rate trustees . [Subsection 45-450(2)]

1.38 If the single-rate trustee is a trustee of a corporate unit trust or a public trading trust, subsection 45-450(3) will provide that Part 2-10 (except for Subdivision 45-D) applies as if the trustee had a taxable income for the income year that is equal to the net income of the trust. Subsection 45-450(3) is necessary to give full effect to the provisions in Part 2-10 in relation to these trustees. In particular, it allows the Commissioner to treat the trusts net income as taxable income of the trustee for the purposes of calculating an instalment rate, benchmark instalment rate or benchmark tax for the trustee.

1.39 A single-rate trustee , cannot choose to pay quarterly PAYG instalments on the basis of GDP-adjusted notional tax even if the trustee fulfils the requirements of Subdivision 45-D. This is because the trustee is liable to tax in respect of the trust as a company and not as an individual. [Subsection 45-450(3)]

1.40 The remaining sections in Subdivision 45-N will not apply to a single-rate trustee . [Section 45-460]

Trustees to whom several instalment rates are given

1.41 Some trustees have several separate liabilities to pay tax as the trustee of one particular trust. If a trustee has one or more liabilities to pay tax through the assessment process as a trustee, it may also have one or more liabilities to pay PAYG instalments.

1.42 A trustee that is liable to pay tax for a previous income year in respect of:

•

a beneficiarys share of the trusts net income under subsection 98(1) or (2) of the ITAA 1936; or

•

income to which no beneficiary is entitled under section 99 or 99A of that Act

will have a liability to pay PAYG instalments for each of those liabilities. Such a trustee is called a multi-rate trustee . [Subsections 45-455(1), (3) and (6)]

1.43 However, a trustee that is liable to pay tax under subsection 98(1) of the ITAA 1936 for a particular beneficiary for a particular year does not have to pay PAYG instalments if that beneficiary will no longer be under a legal disability at the end of the subsequent year. [Subsection 45-455(2)]

1.44 The sections of Part 2-10 have to be applied separately to a trustee in respect of each of its distinct liabilities. Some sections are specifically modified by Subdivision 45-N. [Subsections 45-455(4) and (5)]

Instalment income of a trustee

1.45 The trustee will work out the amount of its instalments under proposed Subdivision 45-C. When calculating an instalment by multiplying the instalment income by the instalment rate, the instalment income to which the instalment rate is applied is the total instalment income of the trust. That is, the trustee applies the rules as to what is instalment income in the same way as any other entity. [Section 45-465]

1.46 The approach in section 45-465 ensures that a multi-rate trustee does not have to work out, for example, the share of the instalment income of the particular beneficiary in respect of whom the liability to pay instalments arises.

1.47 The Commissioner works out the separate instalment rates for a trustee using the trusts total base assessment instalment income. The matching of the instalment income to the rate calculation enables the correct amount of an instalment to be worked out by the trustee in respect of each of the trustees different instalment liabilities.

Multi-rate trustee may choose to pay instalments on the basis of GDP-adjusted notional tax

1.48 A multi-rate trustee may choose to pay quarterly instalments on a GDP-adjusted notional tax basis if the trustee has a liability to pay instalments in relation to its tax liability in respect of:

•

a beneficiary; or

•

income to which no beneficiary is entitled.

This is so even when the trustee is not an individual.

[Section 45-468]

1.49 The reason for giving the multi-rate trustee this choice is that the beneficiaries, in respect of whose interests in the trust the trustee is liable to pay tax, are themselves individuals. The trustee is also taxed as an individual in respect of income to which no beneficiary is entitled.

1.50 To make the choice to pay instalments on a GDP-adjusted notional tax basis, the multi-rate trustee must, in its capacity as a trustee, also fulfil all other conditions in proposed Subdivision 45-D that are prerequisites to making that choice.

How the Commissioner works out instalment rate and notional tax for a multi-rate trustee

Working out the instalment rate

1.51 As for other taxpayers, the Commissioner will work out instalment rates for a multi-rate trustee that has a liability to pay tax for a previous income year. Subsection 45-470(1) sets out the formula for how an instalment rate is worked out. The formula is essentially the same as for other PAYG instalment payers. The notional tax is the notional tax in respect of a particular liability for:

•

a beneficiary; or

•

income to which no beneficiary is entitled.

In effect, the notional tax is worked out on a share of the trusts net income. The base assessment instalment income is, on the other hand, the total base assessment instalment incomeof the trust, not a share of it.

1.52 The instalment rate is worked out in this way to allow the trustee, in working out the amount of an instalment, to apply the instalment rate to the total instalment income of the trust for an instalment period. The trustee will not need to work out each beneficiarys share of the trusts instalment income in order to calculate the amount of the trustees various instalment liabilities.

1.53 Since the beneficiarys instalment rate is based on the trusts instalment income (rather than a share of it because the beneficiary would have included it in its instalment income) the trustees instalment rate will be lower than it otherwise would have been. This will have the effect that, when the particular instalment rate is applied to the total instalment income of the trust, the amount of the instalment will correctly reflect that the particular liability is only in respect of an interest in a part of the trusts income or capital.

1.54 Subsection 45-470(2) defines base assessment instalment income . It is so much of the assessable income of the trust as the Commissioner determines is instalment income for an income year.

1.55 The income year referred to is the base year , which is the year to which the base assessment relates. [Subsection 45-470(5)]

1.56 The base assessment is the latest assessment for the most recent income year for which an assessment has been made of the tax payable by the trustee under subsection 98(1) or (2) or section 99 or 99A of the ITAA 1936. [Subsection 45-470(3)]

1.57 However, if the Commissioner is satisfied that there is a later income year for which no tax is payable, the base assessment is the latest return (or other information) from which an assessment of tax could have been made. [Subsection 45-470(4)]

Working out the notional tax

1.58 As with other taxpayers, the notional tax for the trustee is the trustees adjusted tax on the trustees adjusted taxable income reduced by the adjusted tax on the trustees adjusted withholding income . [Subsections 45-475(1), (2) and (3)]

Working out the adjusted taxable income

1.59 The difference in working out the adjusted taxable income for a multi-rate trustee from other taxpayers is that the adjusted taxable income is worked out on a part of the adjusted net income of the trust rather than on a total taxable income of an entity. This reflects the trustees multiple liabilities in respect of beneficiaries entitlements or of income to which no beneficiary is entitled.

1.60 The adjusted net income of the trust is worked out in much the same way as the adjusted taxable income is worked out under proposed section 45-330 for other PAYG instalment payers. The net income that is adjusted is the net income of the trust as worked out under subsection 95(1) of the ITAA 1936.

1.61 The adjusted net income of the trust is multiplied by a ratio which is designed to determine the particular share of the trusts adjusted net income for which the trustee is assessed. That share is:

((Relevant share)/(Reduced net income of the trust))


[Subsection 45-480(1)]

1.62 Each component is defined. The adjusted net income of the trust means the net income of the trust as worked out for the purposes of the base assessment and:

•

reduced by any net capital gain included in the trusts assessable income as so worked out;

•

increased by any deductions for tax losses that were made in so working out that net income; and

•

reduced by the amount of any tax loss, to the extent that it can be carried forward for working out the trusts net income for the next income year.

[Subsection 45-280(2)]

1.63 The reduced net income of the trust is the net income of the trust, as worked out for the purposes of the base assessment , reduced by any net capital gain included in the trusts assessable income. [Subsection 45-480(2)]

1.64 The relevant share means the reduced beneficiarys share , or the reduced no beneficiarys share , as appropriate, of the net income of the trust, as worked out for the purposes of the base assessment . [Subsection 45-480(2)]

1.65 Reduced beneficiarys share is the share of net income of the trust on which the trustee is liable to pay tax under subsection 98(1) or (2) of the ITAA 1936 in respect of a particular beneficiary. However, it does not include so much of that amount as is attributable to a net capital gain included in the trusts net income. [Subsection 45-483(1)]

1.66 Reduced no beneficiarys share is the amount on which the trustee is liable to pay tax under section 99 or 99A of the ITAA 1936 except so much of that amount that is attributable to a capital gain included in the trusts net income. [Subsection 45-483(2)]

Working out adjusted withholding income

1.67 In some instances, the trust may have withholding income. In such cases the notional tax is reduced by the adjusted tax on the adjusted withholding income . [Subsections 45-475(2) and (3)]

1.68 The formula for working out the adjusted withholding income is set out in subsection 45-485(1) . The formula provides that the net withholding income of the trustee is multiplied by the ratio that the particular relevant share is to the reduced net income of the trust .

1.69 The terms, relevant share and reduced net income of the trust , have the meaning given by subsection 45-480(2). [Subsection 45-285(2)]

1.70 The net withholding income of the trust is the total of the amounts included in the trusts assessable income for the base assessment in respect of withholding payments (except non-quotation withholding payments) reduced by any deduction to the extent that it reasonably relates to those amounts.

Taking account of new or prospective law

1.71 The Commissioner may take proposed subsections 45-325(4) and (5) into account for the purposes of working out the notional tax under section 45-475. That is, the Commissioner is required to apply the law that applies to the income year in which he or she is working out the instalment rate as if it had applied to the income year to which the base assessment relates. The Commissioner may also take account of likely changes to the law if, as a result of the change, the instalment rate is reduced. [Subsection 45-475(4)]

The Commissioner notifies the multi-rate trustee of the instalment rate and notional tax

1.72 The Commissioner will notify the multi-rate trustee of the instalment rate, and when he or she does so, must also notify the trustee of the notional tax for each of the trustees liabilities. The Commissioner may include the information in an assessment notice. [Section 45-473]

1.73 The notional tax is notified to the multi-rate trustee so that the trustee may for example, make a choice, if appropriate, to pay annual PAYG instalments. The trustee may make a different choice in respect of each different PAYG instalment liability.

How the Commissioner works out the benchmark instalment rate and benchmark tax for a multi-rate trustee

Benchmark instalment rate and benchmark tax

1.74 The Commissioner may work out a multi-rate trustees benchmark instalment rate for an income year if the trustee chooses to vary the instalment rate under section 45-205. The year for which the Commissioner works out the benchmark instalment rate is called the variation year . The Commissioner may also work out a multi-rate trustees benchmark tax where the trustee has estimated that amount for the purpose of calculating an annual instalment or a quarterly instalment worked out on the basis of GDP-adjusted notional tax. [Section 45-525]

Benchmark instalment rate

1.75 Section 45-530 sets out how the Commissioner works out the benchmark instalment rate where the trustee, under proposed section 45-205, chooses an instalment rate to work out the amount of an instalment for an instalment period. The trustee does not need to work out a benchmark instalment rate. However, an understanding of how it is worked out by the Commissioner may help the trustee work out the instalment rate that the trustee chooses.

1.76 The benchmark instalment rate is the percentage calculated to 2decimal places (rounding the third decimal place up if it is 5 or more) using the formula:

(((Your benchmark tax)/(Variation year instalment income))/100)


[Subsection 45-530(1)]

1.77 The variation year instalment income (the denominator in the formula contained in subsection 45-530(1)) is so much of the trusts assessable income for the variation year as the Commissioner determines is instalment income for the year. [Subsection 45-530(2)]

1.78 The Commissioner works out the benchmark tax under section 45-535 .

Benchmark tax

1.79 The Commissioner works out the benchmark tax to apply in the formula for working out a benchmark instalment rate .

1.80 The Commissioner may also work out the multi-rate trustees benchmark tax for a variation year if the trustee:

•

has varied the amount of an instalment and the instalment is worked out on the basis of the trustees estimate of the benchmark tax for the income year [subsection 45-525(2)] ;

•

estimates the amount of an annual instalment under proposed paragraph 45-115(1)(c) or proposed paragraph 45-175(1)(b) [subsection 45-525(3)] .

1.81 The benchmark tax is the trustees adjusted assessed tax as worked out under section 45-375 on the reduced beneficiarys share or the reduced no beneficiarys share of the net income of the trust for the variation year . That is, the benchmark tax is worked out in respect of a particular instalment liability. [Subsection 45-535(1)]

1.82 If the trusts assessable income for the variation year includes withholding payments, the trustees adjusted assessed tax is reduced by the total amount of the credits to which the trustee is entitled under proposed section 18-25 in Schedule 1 to the TAA 1953. [Subsections 45-535(2) and (3)]

Amendments consequential upon the insertion of new Subdivision 45-N

1.83 Items 1, 2, 5, 7, 8 and 12 to 15 to this Bill will make minor amendments consequential upon Subdivision 45-N being inserted by item 16 of Schedule1 to this Bill.

Instalment rate and notional tax for life insurance entities and registered organisations

1.84 Item 37 of Schedule 4 to this Bill will insert a special rule for how the Commissioner works out the instalment rate and notional tax for a life insurance entity or a registered organisation.

1.85 The special rule will recognise that an amount attributable to a capital gain will not reduce the CS/RA component of taxable income (i.e. the complying superannuation or roll-over annuity income) for one of these entities.

1.86 Subsection 45-330(3) will be inserted after proposed subsection 45-330(2) in Schedule 1 to the TAA 1953 providing for a method statement in working out the adjusted taxable income for a life insurance entity or a registered organisation.

1.87 Under Step 1 each component of taxable income (except the CS/RA component ) for the base assessment is recalculated disregarding any capital gain.

1.88 These recalculated components are added up in step 2. Step 3 adds the CS/RA component (that is not recalculated to exclude any capital gains) to the step 2 result. Step 4 will reduce that result by any tax losses used in making the base assessment. Finally, step 5 will add any tax losses available to be carried forward to the following income year.

1.89 There are special rules about what constitutes instalment income for these entities and they are discussed in paragraphs 1.33 and 1.34.

Collection of SFSS and ABSTUDY debts through the PAYG system

1.90 New provisions will be inserted by Schedule 4 to this Bill to provide for the collection of SFSS and ABSTUDY debts through the PAYG system. Currently, these debts are only collected through the income tax assessment process. The new collection measures will provide that these debts may be collected progressively throughout the income year under the PAYG system.

1.91 Items 18 and 19 of Schedule 4 will amend proposed section 6-1, which is a guide to Parts 2-5 and 2-10 in Schedule 1 to the TAA 1953, to make it clear that amounts collected under the PAYG system also go towards meeting the liability for these debts.

1.92 Item 20 of Schedule 4 will add 2 paragraphs to proposed section 11-1 to ensure that the statement of the object for the PAYG withholding regime also includes the collection of a SFSS or ABSTUDY debt [paragraphs 11-1(da) and (db)] .

1.93 Item 30 of Schedule 4 will add 2 paragraphs to proposed section 15-30 to ensure that, when making a withholding schedule, the Commissioner must have regard to the rates specified for repayment of accumulated SFSS and ABSTUDY debts [paragraphs 15-30(da) and (db)] .

1.94 Item 31 of Schedule 4 makes a minor amendment consequential upon the amendment made by item 20 .

1.95 Item 35 of Schedule 4 will amend proposed section 45-5 to ensure that the statement of the object of the PAYG instalments regime includes the efficient collection of SFSS and ABSTUDY debts.

1.96 To enable these debts to be collected through the PAYG instalments regime, they have to be taken into account in working out an entitys instalment rate. Therefore, the method statement for working out the adjusted tax in proposed section 45-340 will be amended as it is used to work an entitys notional tax (which is one of the components of the formula used to calculate an instalment rate). Items 38 and 39 of Schedule 4 will insert Step 3A and make a consequential amendment to Step 4 to take account of Step 3A. [Step 3A in section 45-340 method statement]

1.97 Items 40 and 41 of Schedule 4 will amend the method statement for working out the adjusted assessed tax in proposed section 45-375. Step 3A will be inserted and a consequential amendment made to Step 4 to ensure that SFSS and ABSTUDY debts are taken into account in working out the adjusted assessed tax. The adjusted assessed tax is used by the Commissioner to work out an entitys benchmark instalment rate or benchmark tax when an entity varies its instalments. [Step 3A in section 45-375 method statement]

Company tax instalment deferrals

1.98 To facilitate the transition from the company instalment system to the PAYG instalments regime, company instalment taxpayers will be entitled to defer some or all of their assessed tax for the 1999-2000 income year (proposed sections 221AZKB & 221AZKC of the ITAA 1936).

1.99 Schedule 4 to this Bill will amend ITAA 1936 to set out the effect of amending the assessment for the 1999-2000 income year on deferred payments of company instalments.

1.100 Item 11 of Schedule 4 will insert section 221AZKEA to outline the effect on proposed sections 221AZKB and 221AZKC of the ITAA 1936 if an assessment for the 1999-2000 income year is amended. Taxpayers will be put in the position that they would have been in had the original assessment been correct. That is, how much of the final instalment for the 1999-2000 income year can be deferred, and the amount and timing of the repayment of the deferred amount, will be determined by reference to the amended assessment.

1.101 Item 12 of Schedule 4 will insert subsection 221AZKE(2) . This amendment is consequential upon the insertion of section 221AZKEA.

1.102 Item 12 will also make a technical correction by the insertion of subsection 221AZKE(3). It will define the term entity that is used in section 221AZKE of the ITAA 1936 but is not defined in that Act.

1.103 Item 10 of Schedule 4 will make an amendment consequential upon item 11 referred to in paragraph 1.100.

Application

1.104 The amendments discussed in this chapter will commence immediately after the commencement of section 1 of the Tax Administration Bill. The amendments to the PAYG instalments regime will have effect for the 2000-2001, and later, income years. The amendments to the PAYG withholding regime will have effect from 1July 2000. The amendments to the SSA 1991 will commence immediately after item 6 of Schedule 2 of the Youth Allowance Consolidation Bill 1999.

Consequential amendments made by this Bill

Consequential amendments to Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997

1.105 Schedule 5 to this Bill will make amendments to the Dictionary to the ITAA 1997 to:

•

insert new dictionary terms; or

•

make amendments to existing definitions which are consequential upon the other amendments to the PAYG system.

1.106 The following table explains each of the amendments to be made to subsection 995-1(1) of the ITAA 1997.

Consequential amendment to the Social Security Act 1991

1.107 Item 47 in Schedule 3 to this Bill will insert a non-operative note to proposed subsection 1061ZZFG(1) of the SSA 1991. Note 2 to that subsection will alert the reader that FS assessment debts (i.e. a debt arising under the SFSS or ABSTUDY scheme) will becollected through the PAYG system. This amendment is consequential upon the amendments made to the PAYG system by this Bill.

Commencement

1.108 This amendment will be taken to have commencedimmediately after the later of commencement of:

•

item 6 of Schedule 2 to the Youth Allowance Consolidation Bill 1999; or

•

section 1 of the Tax Administration Bill.

Consequential amendment to the Student Assistance Act 1973

1.109 Item 50 in Schedule 3 to this Bill will insert a non-operative note to subsection 12ZN(1) of the SAA 1973. Note 2 to thatsubsection will alert the reader that FS assessment debts (i.e. debts arising under the SFSS or ABSTUDY scheme) will be collected through the PAYG system. This amendment is consequential upon the amendments made to the PAYG system by this Bill.